Question

CASH CONVERSION CYCLE Parramore Corp has $11 million of sales, $3 million of inventories, $3 million of receivables, and $1 million of payables. Its cost of goods sold is 75% of sales, and it finances working capital with bank loans at an 6% rate. Assume 365 days in year for your calculations. Do not round intermediate steps. 1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places. days 2. If Parramore could lower its inventories and receivables by 7% each and increase its payables by 7%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places. days 3. How much cash would be freed up, if Parramore could lower its inventories and receivables by 7% each and increase its payables by 7%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13, 200,000. $ 4. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 7% each and increase its payables by 7%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13, 200,000.

Answer 1

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- 2x Σ AutoSum : A Insert Delete Format Fill 2 Clear Sort & Filter Editing Find & Select Cells ACCOUNTS latest - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri -11AA = = = Dr Wrap Text General Ea Copy Paste BI U D- DA E E E s FMerce Merge & Center - Center $ % % , 4.0 .00 Format Painter :.: Conditional Format Cell Formatting as Table Styles Clipboard Font Alignment Number Styles OM614 fax OJ OKOLOM Formula Baroo OP O O R OS 614 615 616 ANS 1 CASH CONVERSION CYCLE = ICP + ACP - APP 617 618 ICP = INVENTORY CONVERSION PERIOD 619 ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD 620 621 ICP = (365 X 3)/(11 X75%) = 132.7273 622 ACP = AVERAGE COLLECTION PERIOD 624 ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES 623 625 ACP = (365 X 3/11 = 99.5455 626 627 628 APP = AVERAGE PAYABLES PERIOD ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD APP = (365 X 1)/(11*75%) = 44.2424 629 630 631 632 633 634 H Rea DAYS 188.03 (A+B-C) CASH CONVERSION CYCLE - ICP + ACP - APP = FIFO budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont CASH BUDGET ferences: R46 DIFF ANALYSIS ovel BO. 120% ELEB * 90 ENG 22-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Dr General -11AA = = = D- DA E E E Wrap Text FMerce Merge & Center - Center Σ AutoSum : A Fill 2 Sort & m Find & U s $ 4.0 .00 :.: Insert Delete Format % % , Number Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Select Font Alignment Cells OLOMON 00 OP OQ OR OS ANS 2 ICP = INVENTORY CONVERSION PERIOD ICP = 365 DAYS X AVERAGE INVENTORY/ COST OF GOODS SOLD ICP = (365 X 3 X 93%)/(11 X75%) = 123.4364 A Calibri E Copy Paste Format Painter BI Clipboard OM653 OJ OK 634 635 636 637 638 639 640 641 642 643 644 645 646 647 648 649 650 651 652 653 654 H FIFO CASH BUDGET Rea ferences: R46 ACP = AVERAGE COLLECTION PERIOD ACP = 365 DAYS X AVERAGE RECEIVABLES/ SALES ACP = (365 X 3 X 93%)/11 = 92.5773 B APP = AVERAGE PAYABLES PERIOD ACP = 365 DAYS X AVERAGE PAYABLES/ COST OF GOOD SOLD APP = (365 X 1 X 1.07)/(11*75%) = 47.3394 CASH CONVERSION CYCLE = ICP + ACP - APP = DAYS 168.67 (A+B-C) budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont DIFF ANALYSIS ovel BO. 120% ll o TU NO 22-11-2019

ACCOUNTS latest - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut Calibri Dr General -11AA = = = D- DA E E E Wrap Text Merce Merge & Center - Center, Σ AutoSum : A Fill 2 Sort & m Find & BI U $ $ .0 .00 :.: Insert Delete Format % % , Number Conditional Format Formatting as Table Styles Cell Styles 2 Clear Filter Editing Select Font Alignment Cells O K OLOMON 00 OP OQ OR OS ANS 3 CASH FREED UP WILL BE = ANSWER IS = (5-4.51) MILLION = $ 490000 0.49 MILLION NOTE ADD E Copy Paste Format Painter Clipboard OK654 L OJ 654 655 656 657 658 659 660 661 662 663 664 665 666 667 668 669 670 671 672 673 INVESTMENT IN INVENTORIES = INVESTMENT IN RECEIVABLES = INVESTMENT IN PAYABLES = NET INVESTMENT = LESS ADD AFTER 12 % CHANGE INVESTMENT IN INVENTORIES = INVESTMENT IN RECEIVABLES = INVESTMENT IN PAYABLES = NET INVESTMENT = 2.79 [3 X 93%] 2.79 [3 X 93%] 1.07 [1 X 107%] 4.51 LESS ANS 4 CASH FREED UP = 490000 INTEREST RATE ON WORKING CAPITAL LOAN = 6% SO PRE TAX PROFIT WILL INCREASE BY SAVING ON INTEREST, THAT IS 490000 X 6% = 29400 ANSWER = $ 29,400 674 H Rea FIFO budget 45 days cycle ROE, BV MV ratio VARIANCE BEP, OL FL ratios DETROIT float B-S profit loss SALES BUDGET dupont CASH BUDGET ferences: R46 DIFF ANALYSIS ovel BO. 120% ODER 9 * * TO ENG 22-11-2019